Federal Agencies Tighten Data Security Screws on Federal Contractors

Posted on October 7, 2010 by Jason C. Gavejian

Federal contractors are subject to numerous requirements under federal law and, as we have previously highlighted here, need to keep pace with changes in law and regulation. 

Under the Federal Information Security Management Act of 2002 (FISMA) each federal agency is required to develop, document, and implement an agency-wide program to provide information security for the information and information systems that support the operations and assets of the agency, including those provided or managed by another agency, contractor, or other source. Accordingly, FISMA provides authority for the imposition of requirements on those companies which qualify as federal contractors. 

By way of example, the Centers for Medicare and Medicaid Services (CMS), as well as the Department of Veterans Affairs impose specific requirements on their contractors.   

Adding new data protection requirements for federal contractors who use or handle U.S. Department of Defense (DOD) information, the DOD earlier this year issued an advanced notice of proposed rulemaking regarding amendments, 75 F.R. 9563, to the Defense Federal Acquisition Regulation Supplement (DFARS). 

The proposed amendments require “adequate security,” defined as “protection measures … commensurate with the risks of loss, misuse, or unauthorized access to or modification of information,” and have three main subparts; basic safeguarding, enhanced safeguarding, and cyber intrusion reporting. 

Basic safeguards, required for any unclassified DOD information, include:

  • Designating  the level of access and dissemination of informationProtecting DOD information on public computer or Web sites
  • Transmitting electronic information using technology and processes that provide the best level of security and privacy
  • Transmitting voice and fax information on with reasonable assurances that access is limited
  • Protect information by at least one physical or electronic barrier
  • Sanitize media in accordance with the National Institute of Standards and Technology (NIST) before external release or disposal
  • Provide protection against computer intrusions and the unauthorized release of data. 

In addition to the basic safeguards outlined above, contractors are required to implement enhanced safeguards to certain types of data. The enhanced safeguards include:

  • Encryption/Storage controls
  • Network intrusion protection
  • Implement information security controls

Additionally, a reporting requirement has now been proposed, requiring contractors to report to the DOD within 72 hours of any cyber intrusion event that affects DOD information resident on or transiting the contractor’s unclassified information systems.

The new proposed DOD amendments, along with the various other federal contractor requirements, including those imposed by CMS and the Department of Veterans Affairs, highlight the necessity for companies that qualify as federal contractors to be up to date on their legal obligations or risk loss of their federal contractor status. 

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Proposed HITECH Regulations: Will Subcontractors of Business Associates Be Subject to the HIPAA Privacy and Security Rule?

Posted on July 13, 2010 by Joseph Lazzarotti

Further to our discussions of the proposed regulations to implement statutory amendments under the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), we summarize here a proposed changed to the definition of “business associate.” A significant part of the “HIPAA community” (covered entities, business associates and their agents and subcontractors) already is aware of the expanded application of HIPAA to business associates under HITECH. This expansion went into effect February 18, 2010, and, in fact, many business associate agreements currently are being modified in an attempt to reflect the statutory provisions. The HIPAA community, however, may not yet be aware of the proposal to further expand the direct application of the privacy and security rules under HIPAA to subcontractors performing functions for business associates.

A New Class of Business Associate

Prior to the HITECH Act changes, business associates and their agents and subcontractors were not directly subject to HIPAA. Instead, HIPAA required covered entities to obtain certain written assurances from their business associates. One of those written assurances was that business associates would ensure that their agents and subcontractors would agree to be subject to the same conditions and restrictions contained in the business associate agreement entered into with the covered entity.

The proposed regulations would include subcontractors in the group of “business associates” to the extent that they require access to protected health information. Such subcontractors are those persons who are not members of the business associate’s workforce, but perform functions for or provide services to a business associate. This would be the case even if the business associate has failed to enter into a business associate contract with the subcontractor. The regulator’s goal is to ensure the privacy and security protections will not lapse merely because a function is performed by an entity with no direct relationship with a covered entity, although the regulations seek public comments on the definition of subcontractor.

The proposed regulations state (emphasis added):

[W]e propose that downstream entities that work at the direction of or on behalf of a business associate and handle protected health information would also be required to comply with the applicable Privacy and Security Rule provisions in the same manner as the primary business associate, and likewise would incur liability for acts of noncompliance. We note, and further explain below, that this proposed modification would not require the covered entity to have a contract with the subcontractor; rather, the obligation would remain on each business associate to obtain satisfactory assurances in the form of a written contract or other arrangement that a subcontractor will appropriately safeguard protected health information. For example, under this proposal, if a business associate, such as a third party administrator, hires a company to handle document and media shredding to
securely dispose of paper and electronic protected health information, then the shredding company would be directly required to comply with the applicable requirements of the HIPAA Security Rule (e.g., with respect to proper disposal of electronic media) and the Privacy Rule (e.g., with respect to limiting its uses and disclosures of the protected health information in accordance with its contract with the business associate).

As the example above shows, if made final, the proposed regulation would further HIPAA’s reach and affect many businesses that may not currently view themselves as directly subject to the requirements or penalties under HIPAA. Many companies, including those that service the healthcare industry, such as health plans, likely will need to revisit their HIPAA-compliance measures.

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